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It’s Groundhog Day in Washington as the U.S. administration threatens retaliation against Europe, India, Brazil or Indonesia for their actual or planned taxes on digital services companies, which according to U.S. President Donald Trump “are designed to unfairly target” U.S. companies.
The end of the road of a formal probe under section 301 of the 1974 trade act, launched this week by the U.S. Trade Representative, could be punishing trade tariffs against the targeted countries’ exports to the U.S.
Investors or businesses fearing such an outcome, however, first need to remember last year’s French wine and cheese war — which actually didn’t happen.
France, like many European countries, including the U.K., had voted and started to implement a tax on big internet companies, frustrated that no deal could be reached globally on the issue of the tax avoidance schemes of the likes of Apple AAPL, +0.46%, Google GOOGL, +0.51%, Amazon AMZN, +0.05% or Facebook FB, +0.34%.
Threats were issued. Tough words were pronounced. The future of Bordeaux and Camembert on the U.S. market seemed to be at stake. A major Franco-American trade war was about to be declared.
Then compromise was struck. France accepted delaying the payment of the tax — while keeping it on its books — on the condition that a deal be struck at last within the Organization for Economic Cooperation and Development, the international organization tasked with coming up with a global deal on the persistent problem. The U.S., on the other hand, climbed down on its insistence that any OECD deal remain only optional.
Different countries may now react differently to Trump’s new threat. The investigation will target the European Union as a whole, as well as Austria, Spain, Italy, the Czech Republic and the U.K., individually. It also encompasses the big emerging economies of Brazil, India, Indonesia and Turkey.
That is a lot of big enemies to have when you threaten a trade war. So the likelihood is that even if some saber rattling goes on in the next few weeks, compromises will be struck. And there is now a strong incentive for everyone to agree on the ultimate and global compromise — which by the way, Big Tech is calling for, because it would bring an end to permanent uncertainty: an OECD deal, which optimists see happening before the end of the year.
